Sole Proprietorship vs LLC in Switzerland: Which Structure Is Right for Your Freelance Business?

This choice determines everything from your personal liability to your tax obligations to your daily administrative burden. Get it wrong, and you could pay thousands in unnecessary costs or expose your personal assets to business risks.

This guide breaks down both structures with current 2026 costs, real-world examples, and a clear framework to help you choose confidently.

Understanding Sole Proprietorships in Switzerland

A sole proprietorship (entreprise individuelle in French, Einzelfirma in German) is the simplest business structure in Switzerland. You operate under your own name, maintain complete control, and start working immediately.

How Sole Proprietorships Work

The moment you invoice two or more clients, you're technically self-employed. Unlike an LLC, there's no separate legal entity—you and your business are one. This creates both simplicity and risk.

Key characteristics:

Minimal registration requirements: Once your annual revenue exceeds CHF 2,300, you must register with AVS/AHV (social security). Commercial register entry only becomes mandatory when you surpass CHF 100,000 in annual revenue. Until then, you can operate with minimal formalities.

Zero minimum capital: Start with nothing more than a laptop and skills. No CHF 20,000 sitting in a blocked account. Budget around CHF 150 for initial registration costs if you cross the CHF 100,000 threshold.

Simplified accounting: Track income and expenses. That's essentially it. No balance sheets or formal financial statements required unless you exceed CHF 500,000 in annual turnover. Most freelancers handle bookkeeping themselves or with simple software like Magic Heidi.

Direct income access: Your business earnings are your personal income. Withdraw money as needed without formal salary structures or dividend procedures. Everything gets taxed as personal income at your canton's rates.

Full personal liability: Here's the tradeoff. You're personally responsible for all business debts. If a client sues or you default on a business loan, creditors can pursue your personal assets—your home, savings, everything.

Her costs:

• Initial registration: CHF 0 (below threshold)
• AVS/AHV contributions: ~CHF 9,500 (roughly 9.65% of net income)
• Accounting software: CHF 300/year
• Professional liability insurance: CHF 800/year
• Total first-year overhead: ~CHF 10,600

She handles all bookkeeping herself, files her own taxes, and maintains complete flexibility. When clients pay late, she adjusts her personal spending accordingly. The structure works perfectly for her low-risk, service-based business.

Understanding LLCs (Sàrls/GmbHs) in Switzerland

A limited liability company—Société à responsabilité limitée (Sàrl) in French, Gesellschaft mit beschränkter Haftung (GmbH) in German—creates a separate legal entity distinct from you personally.

How Swiss LLCs Work

An LLC exists independently. It owns assets, incurs debts, employs people, and pays taxes separately from its owners. You become an employee of your own company.

Key characteristics:

Mandatory CHF 20,000 minimum capital: You must deposit this amount in a blocked bank account (Sperrkonto) before registration. Once the company exists, you can access most of it for business expenses. This capital serves as a cushion for creditors.

Notarized formation: An LLC requires an authentic act overseen by a notary. This formal process establishes your company's articles of association, defines ownership shares, and creates legal existence.

Commercial register entry: Mandatory registration makes your company's information publicly accessible—including owner names, capital structure, and statutes. Expect CHF 600 in registration fees alone.

Limited personal liability: Your personal assets remain protected from most business debts. Liability typically limits to your capital contribution, though managers can still face personal consequences for certain violations like tax fraud or deliberate misconduct.

Formal accounting requirements: Maintain a complete balance sheet, income statement, and annual report following Swiss OR (Code of Obligations) standards. Most LLCs hire professional accountants, adding CHF 2,000-5,000+ annually.

Corporate taxation: LLCs face "double taxation." The company pays corporate income tax (typically 12-21% depending on canton) on profits, then you personally pay income tax on your salary and wealth tax on any dividends distributed.

His formation costs:

• Professional consultation: CHF 1,500
• Notary fees: CHF 1,200
• Commercial register: CHF 600
• Share capital: CHF 20,000 (recoverable for business use)
• Total initial investment: CHF 23,300

Annual ongoing costs:

• Professional accounting: CHF 3,500
• Commercial register updates: CHF 200
• Insurance: CHF 1,200
• Magic Heidi accounting software: CHF 600
• Total annual overhead: ~CHF 5,500

Dominique pays himself a salary of CHF 120,000, optimized to balance payroll taxes against corporate tax rates. His LLC retains CHF 30,000 in profits, which get taxed at the corporate rate before eventual dividend distribution.

The structure costs more but provides essential liability protection for his work with sensitive financial systems.

Deep Dive: Understanding Liability Protection

The liability question often determines which structure makes sense. Let's examine what you're actually protecting against.

Sole Proprietorship Liability Risks

As a sole proprietor, you're fully liable for:

• Client disputes: If a client sues for breach of contract or professional negligence, they can pursue your personal assets
• Business debts: Unpaid suppliers, loans, or credit lines become your personal obligations
• Tax obligations: The Swiss tax authorities can seize personal assets for unpaid business taxes
• Third-party claims: If your work causes damage (a website crashes during launch, causing client losses), you're personally exposed

Example scenario: A web developer as a sole proprietor builds an e-commerce platform that suffers a data breach. The client sues for CHF 200,000 in damages. Without an LLC structure or adequate insurance, the developer's personal savings, home equity, and other assets are at risk.

LLC Liability Protection (With Important Caveats)

An LLC shields your personal assets from most business liabilities. Creditors typically cannot pursue your home, savings, or personal property for company debts.

However, you remain personally liable for:

• Deliberate misconduct: Fraud, intentional violations, or criminal acts
• Personal guarantees: If you personally guarantee a business loan, you're on the hook regardless of structure
• Tax violations: Willful tax evasion or fraud pierces the corporate veil
• Inadequate capitalization: If courts determine you underfunded the company deliberately, protection may disappear
• Mixing personal/business finances: Using the company as a "personal wallet" eliminates protection

Important for directors: As an LLC manager (Geschäftsführer/Gérant), you have fiduciary duties. Negligent management, failure to file for bankruptcy when required, or violation of social security obligations can create personal liability.

Insurance: Essential Regardless of Structure

Both sole proprietors and LLC owners should carry:

• Professional liability insurance (E&O): Covers negligence claims (CHF 800-2,000/year depending on profession)
• General liability insurance: Protects against property damage and bodily injury claims (CHF 400-1,200/year)
• Legal expense insurance: Covers legal defense costs (CHF 300-600/year)

For high-risk professions (construction, events, medical services, financial advice), insurance is non-negotiable regardless of business structure.

Sole Proprietorship Taxation

Simple but potentially expensive at high incomes:

Income tax: Your business profit gets taxed as personal income at progressive rates. In Zurich, a single person earning CHF 100,000 pays approximately 22% effective rate (federal + cantonal + communal taxes combined).

Wealth tax: Your business assets count toward personal wealth, taxed annually (typically 0.1-0.7% depending on canton).

AVS/AHV contributions: Self-employed individuals pay social security (9.65% of net income if earning CHF 58,800+, minimum CHF 503/year).

No corporate tax: You avoid the double taxation issue entirely.

Total tax burden example (Zurich, single, CHF 100k profit):

• Income tax: ~CHF 22,000
• AVS/AHV: ~CHF 9,650
• Total: ~CHF 31,650 (31.7% effective rate)

LLC Taxation (Double Taxation Explained)

More complex but potentially advantageous for higher earners:

Corporate income tax: The LLC pays tax on profits at federal (8.5% effective rate) and cantonal rates (varies 12-21% total depending on canton and municipality).

Personal income tax: You pay tax on your salary as ordinary income, plus tax on any dividends received (though dividends get partial relief—typically taxed at 60-80% of value at cantonal level due to participation relief).

Payroll taxes: Your LLC pays employer social security contributions (~6% of your salary).

Wealth tax: Your LLC shares count as personal wealth.

Example scenario (Zurich, CHF 150k revenue):

Option A: Pay yourself CHF 120k salary, retain CHF 30k in company

• Corporate tax on CHF 30k: ~CHF 4,500
• Your income tax on CHF 120k salary: ~CHF 28,000
• Your AVS/AHV on salary: ~CHF 11,600
• Employer AVS/AHV paid by LLC: ~CHF 7,200
• Total taxes: ~CHF 51,300 (34.2%)

Option B: As sole proprietor with CHF 150k profit

• Income tax: ~CHF 37,000
• AVS/AHV: ~CHF 14,500
• Total taxes: ~CHF 51,500 (34.3%)

At this income level, there's minimal difference. The LLC advantage emerges at higher incomes (CHF 200k+) where salary/dividend optimization and lower corporate rates on retained earnings create savings.

Key insight: Don't form an LLC purely for tax savings unless you're retaining significant profits in the business or earning CHF 200,000+. The tax optimization potential exists but requires professional planning.

Special Considerations for Your Situation

Foreign Nationals and Work Permits

Sole proprietorship requirements:

• Must hold valid Swiss residence permit (B or C permit typically required)
• EU/EFTA citizens: Can self-employ freely with residence
• Non-EU/EFTA citizens: Must demonstrate economic benefit to Switzerland; canton approval required

LLC requirements:

• At least one director must be Swiss resident
• Foreign founders can own shares but need resident director to manage
• Work permit requirements depend on nationality and role

Part-Time Self-Employment

You can absolutely maintain a salaried job while freelancing part-time:

For sole proprietors:

• Both incomes are taxable
• Declare freelance income on annual tax return
• AVS/AHV contributions adjusted for combined income
• Employer typically handles primary social security; you pay self-employment contributions on freelance income

For LLC owners:

• Can be employed elsewhere and own/manage LLC
• Pay social security through both the employer and your LLC
• More complex payroll administration

Most freelancers start part-time before transitioning fully. A sole proprietorship makes this transition seamless.

When to Transition from Sole Proprietorship to LLC

Common triggers for converting:

• Revenue threshold: Approaching CHF 200,000+ where tax optimization benefits emerge
• Liability concerns: Taking on riskier projects or clients in regulated industries
• Partnership opportunity: Bringing in a co-founder or investor (requires share structure)
• Employee hiring: Easier to manage employment relationships through LLC structure
• Client requirements: Enterprise clients often prefer or require incorporated vendors

Conversion process:

1. Form new LLC following standard process
2. Transfer business assets and contracts to LLC
3. Close sole proprietorship (deregister from commercial register if applicable)
4. Handle any tax implications (consult accountant for capital gains treatment)

Cost: Standard LLC formation costs plus accounting fees for transition (~CHF 3,000-5,000 total)

Timeline: 6-10 weeks

Your Next Steps

1. Assess your liability risk based on your industry and services
2. Project your revenue for the next 1-2 years
3. Calculate total costs using the numbers in this guide
4. Consult a tax advisor if you expect CHF 150,000+ income
5. Register appropriately following the steps outlined above
6. Automate your accounting with Magic Heidi to save hours monthly

The freelance opportunity in Switzerland is tremendous—over 92,000 successful LLCs and 326,000 thriving sole proprietorships prove it. Choose your structure confidently and start building your business today.